It was 6pm when police marched on to the beach at Palma de Mallorca. Six officers, pistols holstered, walked out on to the hot sand in jackboots and surrounded a group of young men. A brief stand-off ensued, before the holidaymakers were frogmarched from the beach in their swimming shorts and fined.

"They were drinking bottles of beer and putting them in the sand, taking bottles into the sea, that's not a good idea," explained an officer. Hundreds had watched impassively as the scene unfolded. Then, the show now over, Palma's gigantic beach party went on.

The four-mile Playa de Palma beach stretching from Mallorca's capital has become the frontline in an escalating conflict between the city's authorities and the young north European hedonists – thousands of Britons among them – who for decades have provided Palma with its main source of income. The locals call them "bucketheads" because of their fondness for drinking rum, vodka or sangria from plastic tubs that litter the length of the beach.

As it pursues a drive to raise the tone of its tourist industry, the city council wants to see fewer of the young drinkers, replacing them with what its officials describe as a "more discerning" type of visitor.

To achieve that end, the authorities have introduced a sliding scale of penalties for drinking on the beach, arguing that mass boozing sessions are driving away families, intimidating children and leading to drunken disturbances among tanked-up tourists in the evening. Posters featuring a large yellow bucket with straws and a small bottle first appeared next to the beach last month. "No en la playa" it states, warning that bucketheads face a maximum fine of €1,800 (£1,400) if they persist.

According to the council, the Austrians are the worst culprits, the Germans are almost as bad and the English come third in the misbehaviour league.

The backlash has been immediate as Mallorca's version of a culture war begins. Last Thursday's incident occurred opposite Balneario 6, the seething block of bars and cafes known as Ballermann. This is the German equivalent of Magaluf, the infamous British haunt 15 miles along the bay.

The bucketheads were out in force. On the playa, huge groups every few metres huddled around plastic pots, happily sucking cheap supermarket spirits through metre-long straws. Some beachgoers stuck to beer. Crates of San Miguel lay scattered across the sands. Hundreds of brown bottles were stuffed neck-down into the sand.

The mood among the revellers was defiant: Emmalina Pichler, 18, a student from Vienna, said: "It's normal to come here to drink, everyone does it. It's bad when people don't clean up their rubbish but we don't cause any trouble." Her 19-year-old boyfriend, Karl Fischer, from Stuttgart, is adamant the authorities will eventually concede defeat.

Joiner Peter Jamieson, 22, from Peterborough, was another who refused to be cowed, arguing that a few beers on the sands was an integral part of his two-week holiday. He said: "Everyone's drinking on the beach where I am [near Arenal], I can't see how they can stop it. If they start fining everyone willy-nilly then people will stop coming here, they'll be shooting themselves in the foot."

His friend, Tony Holmes, also 22, a delivery driver from Birmingham, suggested that people should refuse to pay the fines if caught drinking. "Then what? They can't throw us all in prison. If they go for people who leave a mess I could understand it, but most people are well behaved, we've seen no trouble."

Declaring war on its loyal hedonists is a gamble. Palma developed its modern economy on package tours and a tolerance of excessive behaviour, and the financial crisis engulfing Spain has starkly underlined the importance of tourism to Mallorca's economic well-being. More than 78,000 locals aged 25-44 are without work from an island population of 702,000.

Falling prices in the Playa de Palma strip and restrictions imposed by the perception of Mallorca as a seasonal holiday destination have not helped. So Palma wants to sell itself as a year-round city break with an emphasis on cultural and gastronomic tourism, not buckets of cheap sangria.

The city has cobbled streets, boutique shops and one of Spain's most impressive cathedrals with its Gothic towers and an interior finished by Gaudí in 1909. Some compare Mallorca to a Barcelona without pickpockets.

According to Palma's public safety officer, Guillermo Navarro, "it was high time we did something". Neus Perona, of the council's tourism office explains that the new laws are meant to "make the area more peaceful".

The buckethead battle is likely to be only the first in an struggle for the soul of the playa. Up to 60% of the Playa de Palma's existing 40,000 hotel beds are to be "eradicated, and replaced with hotels that will attract a more discerning tourist", according to the consortium in charge of development of the resort.

There are already signs that Palma's town hall visionaries are on to something. Over recent years the island's natural beauty, and a host of refurbished buildings and new green spaces, have attracted a plethora of jet-set celebrities. Mallorca, according to research last month, is among the top 10 destinations where tourists are most likely to bump into somebody famous.

Michael Douglas and Catherine Zeta-Jones own a Mallorca mansion. Others include Claudia Schiffer and Andrew Lloyd Webber and of course its most famous son, tennis player Rafael Nadal.

But there are at least some locals who will be unhappy if the heavy-drinking north Europeans are forced to change their ways. Supermarkets sell hundreds of buckets a day. At Spar, on the Carrer del Pare Bartomeu Salva, staff say the young drinkers present "very good business". It sells 25 buckets a day. Current offers range from six litres of Sangria for €8.50 to €19.99 for Jägermeister and two bottles of energy drink, giant straws included.

Groups of locals trawl the wheelie bins lined at the back of the beach for containers to sell back to the supermarkets. Juan and his wife scour the bins every day during the summer. By dusk last Thursday they had gathered more than 80. They may not be out of work any time soon. Old habits die hard. The morning after the beach raid, the buckets were back. "This is our holiday," says au pair Klara Schulz, 24, from Hamburg, between sips. "They cannot stop us because there are so many doing it. Why don't they lighten up and join us?"